Top firms spend big to face U.S. stress tests

Deutsche Bank, Barclays and 11 other foreign banks have spent several billion dollars in the past three years complying with a new Federal Reserve rule that will trap capital in the U.S. and boost costs.

The rule, which takes effect July 1, requires foreign banks whose U.S. assets exceed $50bn to create umbrella legal structures for their local operations and take part in the Fed’s annual stress tests. The 10 largest banks affected had average operating expenses of $32bn last year, and a $500m tab would increase that by less than 2%. Still, three of the firms reported losses last year, and the added costs will make it more difficult to cope with challenges including the U.K. vote to leave the European Union as well as Europe’s lagging economy, negative interest rates and legacy bad loans.

“That’s a lot of money for each bank, particularly in the current environment when they’re having difficulty making money,” said Karen Shaw Petrou, a managing partner at Washington-based research firm Federal Financial Analytics. “Banks have been spending lots more on compliance in recent years as regulations pile up on them. This takes money away from other tasks like entering new businesses.”

Ian Bolland

A journalism graduate of Liverpool John Moores University. During his time at university, Ian spent time on work experience at local newspapers in Liverpool, Bolton and Wigan, and prior to that he did work for The Observer's 'fans verdict'. Ian also has interests in news, current affairs and business but mostly sport, including football, rugby league, cricket, golf and Formula 1, amongst others.